Business Freemium And The Consumerization Of The Enterprise

As we"ve discussed in previous posts, enterprise software has undergone an enormous transformation over the past decade. But while its historical revolution has been at the hands of cloud computing, mobile technology, and software delivered “as a service” (SaaS), today’s enterprise is evolving not through a new technology, but rather, a new business model – business freemium – that indicates a wider trend of enterprise consumerization.

The current landscape of freemium covers a range of industries, from music (Spotify), to communications (Skype), to social networks (LinkedIn). But it’s within the enterprise that business freemiums such as Box, Cotap, and Insightly, the small-business CRM, are demonstrating the model’s alignment with an overall movement of consumerization, by which workers are asserting that it’s not enough for enterprise software to be functional—it must also be well-designed and intuitive.

Gordon Ritter, founder and general partner of Emergence Capital and known for his successful investments in SalesForce.com and Veeva Systems, sees the business freemium model as part of a general continuum, whereby technology’s shift to the cloud is fundamentally disrupting incumbents by giving more people access to software than ever before.

Even if free trials have always existed, Ritter said, software distributed through a business freemium model opens doors to an entirely new magnitude of capital efficiency and market reach.

Because of their non-linear structure, business freemium startups can often grow at rapid rates and with lower fixed costs. Whereas software-as-a-service companies require dedicated teams to market their products and sell to each customer, business freemiums can offset their marketing and acquisition costs through the viral adoption of a product that customers can directly purchase.

“Business freemium has unlocked markets that couldn’t be served before by SaaS,” said Matt Holleran, founder and managing director of Cloud Apps Management, LLC, and previous vice president of AppExchange with SalesForce.com. “Essentially, business freemium unlocks markets that are global in scale, and they’re far more capital efficient.”

Thanks to the cloud, software development and distribution costs are lower than they've ever been, so software is not just easier to create—it’s also easier to share. In an age of unprecedented access to information, the business freemium model’s inherent focus on winning the vote of the user (and the user’s wallet) has the potential to transform the way we interact with our enterprise software.

While no business can survive purely by offering services for free, those companies with features most suited to a business freemium model have proven that there are advantages to giving away your product. One example is the small-business CRM Insightly.

Previously the CEO of a small mining software company in Australia, Insightly founder and CEO Anthony Smith learned firsthand the challenges of finding competitively priced, easy-to-use software. Working in the Australian desert, Smith was left stranded by existing communications technology that was more geared for corporations than small businesses, and which was difficult to integrate with the basic e-mail and project management tools he was already using.

As a result, Insightly was born from Smith’s vision for a CRM software that was simple, affordable, and powerful. Because of Insightly’s usability, its attention to customer feedback, and its price point (Insightly is free to companies with three or fewer employees), Smith’s choice of a business freemium model appears less as a marketing ploy and more as an outgrowth of Insightly’s values and advantages as a company.

According to Holleran and Smith, several criteria are necessary for a business freemium model to thrive. For example, business freemium companies need a large number of users and a material market; they must be inherently global, and the user’s first experience with their products must be more than just satisfactory—it has to be fantastic.

With about 95 million small businesses worldwide, a competitive price, and an interface known for its refreshing simplicity, Insightly has the power to inspire users to share their positive experience with others and spread the software’s reach, both within an enterprise and to individual consumers. And with a user base that’s almost tripled in the past year, Insightly has already demonstrated its product’s success, as well as its appeal to the worker-as-consumer.

With opportunity comes the risk of bloating, or the chance that users will be overwhelmed with the number of business freemium products to try, said Ritter. Even for thriving young startups, and even at zero cost to the consumer, it might become difficult to stand out in a crowded ecosystem, and a backlash could develop to everything freemium.

For any business freemium model, there’s also the question of conversion, or moving customers from a free to premium version of a service.

In the case of business software like Insightly, however, the enterprise market poses a unique advantage.

When a software enters the workplace, said Holleran, upgrades become more essential because they’re upgrades for work. Perhaps even more importantly, Insightly’s simple interface and low to non-existent purchase price make it the ideal CRM for a newborn business, and its tiered pricing a flexible option for a growing business to stick with.

Even in a space rife with competition, Insightly has found its niche. By focusing on a particular client base – small and midsize businesses – Insightly has been able to adapt to its clients’ needs through pricing strategy, design, and structures such as product integration that are essential to small teams.

“To succeed, companies need to be clear about who they’re going to serve,” said Ritter. “And Insightly is focused on maintaining a clear understanding of who it wants to care for.”

Because of that customer focus, Insightly has the chance to become a major player in a global market, and business freemium can help take it there.

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